New report shows tax laws in several states allow home equity theft

Arlington, VA; November 29, 2022: A new report released today by Pacific Legal Foundation shows that tax laws in several states allow local governments and private investors to steal substantial amounts of home equity from homeowners who are late on their property taxes. It is the first national study to expose the injustice of home equity theft through tax foreclosure.

The report “End Home Equity Theft” finds that 12 states and Washington D.C. have laws on the books that regularly allow local governments or private investors to take dramatically more than what is owed from homeowners who are behind on their property taxes. Additionally, the report finds that there are ten more states that protect home equity in the foreclosure process but provide loopholes to allow governments or private entities to seize excess equity value that should belong to the homeowner. These laws have allowed government officials to take homes that have been in families for generations and leave some people homeless over tax debts that amount to less than one percent of their property’s value.

“Our findings are alarming,” said Angela Erickson, strategic research director at Pacific Legal Foundation. “Home equity theft is robbing thousands of people of their homes and all the equity they’ve built. A system that allows governments and private investors to take more than what is owed creates a perverse incentive to work against the homeowner — not with the homeowner — to get the tax debt paid.”

Summary:

• The report is the most comprehensive and up-to-date survey on state tax and foreclosure laws.
• Tax laws in 12 states and Washington D.C. allow local governments or private investors to take dramatically more than what it is owed. (Alabama, Arizona, Colorado, District of Columbia, Illinois, Maine, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, and South Dakota).
• Other states protect home equity through foreclosure, but ten of those states have loopholes that allow local governments or private entities to seize home equity in more limited circumstances.

Key Findings:

• Homeowners lost more than $777 million in life savings on more than 5,600 homes based on their market value, above what they owed in tax debt. On average, homeowners lost 86 percent of their equity.
• Government entities, which often sell properties for a fraction of their market value, collected an estimated $26 million more than they were owed on about 1,300 homes.
• Private investors collected an estimated $250 million more than they were owed on about 2,600 homes.

In addition to the “End Home Equity Theft” report, PLF also recently filed three petitions (Fair, Nieveen, and Tyler) with the U.S. Supreme Court on behalf of clients who have suffered from unjust home equity theft.